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Real Estate

19 February 2016

Small World 

To some extent, Chinese wealth has supported the continent’s real estate markets in recent years, particularly in major commercial centers such as London and Berlin. It’s now questionable whether that demand will be sustained as China’s economic growth continues to weaken.

The most recent European property report by Knight Frank, the real estate advisory, suggests that the withdrawal of Asian and Middle Eastern money from European property markets could affect the value of offices and shops in London, Paris and Frankfurt, where investors are already concerned about high prices.

The firm expects the volume of commercial property sales to be virtually unchanged in 2016, following three years of growth above 20%, buoyed by the expansionist monetary policy of the European Central Bank.

But there may be other factors in play, such as currency considerations. There are some signs that China’s larger investment funds are moving money out of the domestic market and redeploying it into European markets such as Berlin and Frankfurt.

Indeed, the nature of the Chinese economic slowdown may prove more important than whether 2016 growth falls to 5% or even 3%, compared to the (official) 2015 expansion rate of 6.9%. 

The movements of currency markets, the strength of China's emerging services sector and the investment preferences of domestic investors may all play a role in how the relationship evolves. 

Meanwhile, another leading property firm, CBRE, believes that certain areas of the European property market could become safe havens amidst turbulent global markets. It predicts that the volume of Chinese investment into London this year could surpass the £3 billion seen in 2015, particularly given the recent weakness of sterling. 

According to Neil Blake, CBRE’s head of research and forecasting for the EMEA region, “Recent equity market volatility, driven by concerns over China, other emerging markets and oil prices, has focused many minds on downside risk, but there are good reasons to expect that European property will outperform other assets in 2016.”

Blake added: “Very low interest rates and the weakness of the euro make property look relatively attractive, regardless of recent falls in yields in some markets.”